ServisFirst Bancshares, Inc. Q2 FY2025 earnings call

Key Points

• Loans: Solid loan growth (11% annualized net of payoffs), robust loan pipeline; loan demand good but not great. CRE has elevated payoffs but replacing with new projects, some CRE projects not penciling out at current higher interest rates.
• Deposits: Normalization of higher cost municipal and correspondent deposits, focus on core deposits with treasury products.
• New Markets: Hired 7 new producers in Q2, ramped up merchant team for potential growth.
• Credit Update: Total charges ~$6.5 million in Q2, driven by one loan; allowance for credit losses ratio stable at 1.28%; NPAs stable, aggressive NPA management.
• Financials: Net income grew, bond portfolio restructuring with loss but higher yield reinvestment; reversed interest expense accrual; focus on margin growth, price discipline for loans/deposits; noninterest expense down, efficiency ratio below 34%.

Loans: Solid loan growth net of payoffs at 11% annualized. Commercial and industrial lending has less payoffs than CRE; CRE has elevated payoffs but replacing with new projects. Real estate projects with higher interest rates may not pencil out, but tax credit-oriented projects have robust demand. Deposits: Normalization of higher cost municipal and correspondent deposits, with a large municipal deposit running off; focus on core deposits with treasury products. New Markets: Hired 7 new producers in Q2, ramped up merchant team. Financials: Net income was $61.4 million, diluted EPS $1.12. Pre-provision net revenue $87.9 million. Adjusted margin was 3.05%, up 13 basis points QoQ. Tangible book value ended at $31.27 per share.

Forward-Looking

• Margin: Expect margin to continue increasing, ~3.25%-3.20% by year-end absent Fed changes, with 10-14 basis points QoQ increase.
• Deposits: Manage deposits to fund loan growth, not have excess funding.
• Staffing: New lenders hired, focus on merchant banking with low penetration rate among existing customers, aiming for 8% penetration among existing customers.

• CRE Payoffs: Elevated payoffs on commercial real estate, with higher equity requirements and some projects not penciling out at current rates.
• Fed Actions: Impact on margin if Fed rates change; deposit costs and loan demand could be affected.
• Bond Portfolio Restructure: Loss from bond sale, but expected to improve future margin.

Q: Net interest margin and trajectory A: David Sparacio said adjusted margin is 3.05%, expects to increase to ~3.25%-3.20% by year-end, with ~10-14 basis points QoQ increase.

Q: Deposit growth and funding A: David Sparacio mentioned managing through loan growth, can onboard deposits if right price, but need to avoid excess funding.

Q: New lenders and merchant initiative A: Thomas Ashford Broughton and David Sparacio said 7 new producers hired, focus on merchant card processing with low penetration among existing customers, aiming for 8% penetration.